Allocation of construction costs for home office/pre-tax deduction
February 14, 2010 | 50,00 EUR | answered by Dipl.BW/SB Ulrich Stiller
Dear Sir or Madam,
we are currently in discussion with our tax office regarding the following issue:
In 2008, we built a single-family house which we currently reside in. My wife is self-employed and uses a room in the house as her office.
In our tax returns for 2008, we calculated all construction costs for the office based on the proportion of the office's area to the total living space of the house. The input tax was also calculated in this way.
The tax office now requests "a division according to input taxes that are directly attributable to the office or directly to the residential area and to be divided based on the usable area."
The tax office refers to § 15 para. 4 UStG, A 208 para. 1 No. 1-3 and para. 2 UStR.
In an initial letter, the tax office states that our construction cost breakdown includes expenses that can clearly be attributed to either the business or private areas (kitchen furnishings, bathroom, dressing room, tiles, etc.). So, do these mentioned expenses really have to be excluded? Is this arbitrary or actually a common practice/legal situation?
What is your opinion on this matter and do you have any relevant judgments/law references/own experiences that could be helpful to us? Of course, we would like to avoid the requested division at all costs, as it would involve a lot of work for you and be very unfavorable in terms of input tax deduction.
Thank you for your assistance!!
Best regards,
Ralf Liesenberg
Dear inquirer,
Thank you for your inquiry, which I would like to answer based on the information provided and in the context of your query for initial consultation as follows:
The matter has been clarified by the Federal Fiscal Court judgment of 22.11.2007 (V R 43/06). If the building was acquired or constructed in one go, a UNIFIED object exists. If a unified object is now used in a mixed manner (taxable and tax-exempt), the division must be done not spatially, but only proportionally. The shares can be determined based on the turnover key (standard division according to the 6th EC Directive or VAT Directive) or based on the areas. This is solely your responsibility. A division into "specific building parts" based on their use for the purpose of input tax apportionment is not permissible.
The administration has adopted the BFH case law in a Federal Ministry of Finance letter dated 30.09.2008 (IV B 8-S 7306/08/10001). I quote from the letter as follows:
"If a building is acquired or constructed by an entrepreneur and this building is intended to be used for both tax-exempt and taxable output supplies, the entire input tax amounts attributable to the acquisition or construction costs of the building must be apportioned in accordance with § 15 (4) UStG. For the allocation of these input tax amounts, the "proportional" division of the use of the entire building for tax-exempt or taxable supplies is decisive (cf. BFH judgment of 28.9.2006, ibid.). This regularly results in determining the non-deductible input tax amounts in accordance with § 15 (4) UStG through a reasonable estimate. As a reasonable allocation criterion, the division based on the ratio of the useful areas is usually considered for buildings."
Your allocation criterion is therefore in line with case law.
I hope my explanations have been helpful to you.
Yours sincerely,
Ulrich Stiller
Tax Advisor
